A successful 2018 can come in the form of multiple opportunities. Some will happen fast, while others will require an investment of your time, money and energy. But, the latter are the opportunities that tend to transform your business and provide exponential growth. You need to be thinking about both – creating quick results while making strides for long-term growth.
If you are going to make 2018 your best year ever, think about changing the way you talk with clients. We tend to think about performance, rates of return and fees. Those are important items, but the transfer of risk can be more important on several levels.
Why would you want to retain risk without any larger return for doing so?
The answer is usually the cost of the insurance. So, many times, our clients choose to self-insure their retirement income through systematic withdrawals of assets under management. You need to help them understand the risks of longevity and the costs of not transferring their risks.
Our research shows that most people, regardless of income and net worth, benefit from having 15 percent of their portfolio from guaranteed income sources. Those sources are Social Security, defined benefit plans, and privately purchased annuities. The ability to pool your life expectancy with other people creates a transfer of risk that is not available in any investment vehicle besides guaranteed income sources.
As you meet with business owners, many will want to shift the risks of their aging pension plans to another source. There are trillions of dollars in pension plans across the United States that are no longer serving their corporations. The plans are not properly rewarding the people for extended service. The plans don’t help recruit better talent. And, they aren’t accruing additional benefits. It’s simply a liability for many CEOs today.
Transferring a pension plan allows a company to free up resources that would normally be used for administrative work on an outdated plan. Due to tax reform, some companies spend idle dollars to sure up their plan. So, many are in a great position to transfer to an insurance carrier. While there is a one-year premium to shift this risk, the cost savings of administrating the plan typically outweigh the initial premium.
Change your presentation to clients to shifting risks. They are surrounded by risks in today’s retirement planning market. Be different. Returns won’t matter if you can shift some of the income risk to an insurance carrier.
Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”
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